Was Facebook’s Historic Stock Price Plummet its Own Fault?

BusinessWas Facebook’s Historic Stock Price Plummet its Own Fault?

Was Facebook’s Historic Stock Price Plummet its Own Fault?

Following its earnings call, Facebook watched its shares plunge into a free-fall through Thursday.
The company’s shares headed into the largest one-day drop in the history of the stock market.

Losing $119 Billion

By the closing bell last Thursday, Facebook had lost an astonishing 19 percent – $119 billion – of its stock market value.  The CEO, himself, took a major hit. Mark Zuckerberg’s personal net worth tanked by $16 billion because of the falling shares.  That day was easily the worst the company had seen since it went public back in 2012.  It also broke the previous record for the biggest single-day drop in stock market history.  Without adjusting for inflation, the previous record-holder had been Intel, which lost $91 billion in September 2000.
The freefalling shares occurred on the day after the company made its report that its revenue growth was slowing and would continue to do so in a significant way throughout 2018.  It also stated that it expected its expenses to climb at an astounding rate.

Cambridge Analytica Scandal Still Pinching

Though Facebook’s last earnings report occurred after the Cambridge Analytica scandal, those figures did not yet reflect the type of impact it would have on the company.  The social media giant managed to perform very well immediately following the scandal and Zuckerberg’s face-off in the multi-day  hours-long Senate hearing.
While Facebook’s numbers were still strong in this latest earnings call, it missed some of its central targets and even its own predictions aren’t as strong as they had previously been for the remainder of the year.  While these may represent only minor adjustments in expectations, for a company this size, even slight drops in expectations translate to Facebook losing billions.
The company has experienced four straight flat quarters in the United States and Canada, its core network.  Its daily active users figure was 1.47 billion, when analysts had been expecting 1.48 billion.  Average revenue projections were for $13.3 billion, when Facebook delivered with a slightly lower $13.2 billion. The average revenue per user was expected to be $5.97, but the reality was $5.95.

Rising Development Cuts into Revenue

“We expect revenue growth rates to continue to decelerate in the second half,” said David Wehner, Facebook’s Chief Financial Officer. He also added that: “We’re continuing to focus our product development around putting privacy first, and that’s going to, we believe, have some impact on revenue growth.”
By placing its focus on promoting new services such as Stories, it “is also coming at the expense of revenue growth,” said Wehner.